Publication overview

Bank restructuring and enterprise reform

Abstract

The fact that enterprise reform and bank restructuring in eastern Europe are two intricately intertwined problems is by now abundantly clear and well documented. Firms in distress stop servicing their loans, and non-performing loans are at the root of the commercial banks' troubles. In turn, failure by unreformed banks to enforce loan contracts adequately gives firms incentives for lax loan servicing, completing the circle of causality. In this paper we set the stage by first outlining the arguments for and against the various approaches. We then discuss in particular the novel approach, implemented mostly in Poland, but use the Hungary and Slovenia evidence to put some of the key results in perspective and give some impression of how alternatives might have fared.